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Overview of Sub-Forum 2
ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2 ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
i
Statement from SF2 Chairs
The Chair and Vice-chairs express their heartfelt gratitude to members and experts of the ABMF SF2 for their contributions to make this initiative fruitful. The Chair and Vice-chairs also hope to have the continuous support of the
members and experts for this initiative since this report is only the first step to bring to fruition the objectives of ABMF. Last but not least, the Chair and Vice-chairs are grateful to the ADB secretariat and the SF2 team, particularly the ADB consultant for SF2, for drafting this report.
February 2012
Mr. Jong-Hyung LeeChair of the ABMF SF2
Ms. Margeret Mutiara Tang Mr. Hiroshi IkegamiVice-chair of the ABMF SF2 Vice-chair of the ABMF SF2
ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
iii
Contents
Statement from SF2 Chairs .......................................................................................................................i
Preface ....................................................................................................................................................1
Executive Summary of SF2 ......................................................................................................................3
Member List of SF2 .................................................................................................................................7A. National Members and Experts....................................................................................................7B. International Experts...................................................................................................................8C. Observing Authorities ..................................................................................................................8D. ADB Secretariat and Consultants ................................................................................................8
ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
1
Preface
The Association of Southeast Asian Nations plus People’s Republic of China, Japan, and Republic of Korea (ASEAN+3) established a forum called ASEAN+3 Bond Market Forum (ABMF) in September 2010 as a common platform to
foster standardization of market practices and harmonization of regulations relating to cross-border trades in the region. ABMF reports its activities to the Task Force 3 (TF3) of the Asian Bond Markets Initiative (ABMI) under the institutional framework of the ASEAN+3 Finance Ministers Meeting. ABMF consists of two sub-forums— Sub-Forum 1 (SF1) and Sub-Forum 2 (SF2). SF1 collates and compares regulations and market practices in the region, while SF2 looks to harmonize transaction procedures and bond messages with a view to cut the costs of cross-border deals. This report focuses on the activities of SF2.
Members and experts participating in the ABMF SF2 have conducted a survey on bond markets and their infrastructures in ASEAN+3 with tremendous support from the Asian Development Bank (ADB) secretariat and consultants. The survey looked into making possible cross-border straight-through processing of bond transactions to encourage investment of ASEAN+3 monies in the region. The participants have contributed through fruitful discussions and compiled this report to be submitted to the Task Force 3 (TF3) of ABMI.
There are 13 countries and 14 economies in the ASEAN+3 including Brunei Darussalam (Brunei, BRU), the Kingdom of Cambodia (Cambodia, CAM), People’s Republic of China (China, PRC), Hong Kong Special Administrative Region (Hong Kong, HKG), Republic of Indonesia (Indonesia, INO), Japan (Japan, JPN), Republic of Korea (Korea, KOR), Lao People’s Democratic Republic (Lao PDR, LAO), Malaysia (Malaysia, MAL), Union of Myanmar (Myanmar, MYA), Republic of the Philippines (Philippines, PHI), Republic of Singapore (Singapore, SIN), Kingdom of Thailand (Thailand, THA), and Social Republic of Viet Nam (Viet Nam, VIE).
Ten economies out of 14 have already developed sound and robust bond markets, while four economies are planning to or are in the process of developing their markets. This report mainly discusses the harmonization and standardization of the 10 economies
ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
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ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
with existing bond markets. Other important issues of ABMF SF2 include planning, developing and fostering the bond markets of the four economies, which are creating sound and robust bond markets in their respective countries.
This report is a preliminary result of the ABMF SF2 and consists of three parts. Part 1 provides an overview of the bond markets and their infrastructures in ASEAN+3. Part 2 reports on the issues of economies with bond markets in the region. Part 3 contains the bond-market infrastructure diagrams, domestic bond transaction flows, and cross-border bond transaction flows. Contents of the report are as follows:
Overview of Sub-Forum 2
Part 1: Bond Markets and Their Infrastructure in ASEAN+3
Part 2: Bond Markets and Their Infrastructures in Each Economy
Part 3: Bond Market Infrastructure Diagrams, Domestic Bond Transaction Flows, and Cross-border Bond Transaction Flows
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ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
Executive Summary of SF2
The Joint Ministerial Statement of the 13th Association of Southeast Asian Nations, the People’s Republic of China, Japan, and the Republic of Korea (ASEAN+3) Finance Ministers’ Meeting, which was held on 2 May 2010 in
Tashkent, Uzbekistan, endorsed the establishment of the ASEAN+3 Bond Market Forum (ABMF) as a common platform to foster standardization of market practices and harmonization of regulations relating to cross-border bond transactions in the region. The ABMF aims to discuss various bond market issues in order to enhance the mobilization of regional savings for regional investments and to improve information flow in the markets. The ABMF consists of two forums: Sub-Forum 1 (SF1) and Sub-Forum 2 (SF2). The objective of SF1 is to close the information gap in regulations, market practices, and other areas in the region’s bond markets. SF2 focuses to enhance regional straight-through processing (STP) by harmonization of transaction procedures and standardization of messages. This paper is the report about the activities of SF2 from September 2010 to December 2011.
The ABMF SF2 members and experts (ABMF SF2) discussed how to enhance regional STP of government bond transactions from trade to settlement, and conducted a survey on government bond settlement-related infrastructures, domestic bond transaction flows, and cross-border bond transaction flows. The ABMF SF2 chose delivery versus payment (DVP) as a typical transaction type to be surveyed.
Below is an overview of government bond markets in ASEAN+3.
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ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
Trad
e
Trad
e m
atch
ing
CCP
Sett
lem
ent
mat
chin
g
Bond
se
ttle
men
t
Cash
se
ttle
men
t
ASEA
N+
3 G
over
nmen
t B
ond
Mar
ket
Infr
astr
uctu
re D
iagr
am
Viet
Nam
OTC
VSD
KSD
CCDC
CSDC
C
PDTC
PDEx
Ross
STP
Facil
ity
BTBT
r-ROS
S
PDEx
eDvP
JASD
ECPS
MS
JASD
ECPS
MS
CFET
SHK
MA
CMU
TCH
PTI
TSD
PTI
HNX
BIDV
Com
mer
cial
Bank
BOT
BAHT
NET
MAS
MEP
S+
RTGS
BSP
PhilP
ass
BOK
BOK-
Wire
+BO
JBO
J-NE
TBI
BI-R
TGS
HKM
ACH
ATS
PBOC
HVPS
CN
APS
BOJ
BOJ-
NET
BNM
RENT
AS-
IFTS
TCH
PTI
BMS
ETP
Toky
oOT
CM
anila
OTC
PRC
OTC
Inte
r-ban
kBo
nd M
arke
t
Thai
land
OTC
Indo
nesia
OTC
Mal
aysia
OTC
MAS
MEP
S+ S
GSBN
MRE
NTAS
-SSD
S
BIBI
-SSS
S
HKM
ACM
U
Hong
Kon
gOT
CSe
oul
OTC
KRX
SSE
and
SZSE
BRU,
CAM
, LAO
, MYA
VIE
MAL
SIN
JPN
PRC
THA
KOR
HKG
PHI
INO
Brun
ei
Daru
ssal
amCa
mbo
dia
Lao
PDR
Mya
nmar
(Net
ting)
Note
:
Exch
ange
Mar
ket
Dire
ct in
ters
yste
m c
onne
ctio
n
Ce
ntra
l Ban
k
In
dire
ct c
onne
ctio
n. Tr
ade
data
(bon
d se
ttlem
ent i
nstru
ctio
ns) a
re e
nter
ed to
CSD
by
agen
t cus
todi
ans.
Com
mer
cial B
ank
Sour
ce:
ABM
F SF
2.
KRX
JGBC
C
PDEx
PDEx
Sing
apor
eOT
C
5
ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2 ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
The ABMF SF2 also surveyed on matching, settlement cycle, and other issues including numbering and coding such as international securities identification number (ISIN), business identifier code (BIC), securities account number, and character code.
The ABMF SF2 compiled and discussed the survey results from the viewpoint of enhancing cross-border STP and standardization of the messages, including numbering and coding.
The following are preliminary conclusions of the discussions:
1. Robust and sound bond infrastructures. Each market in ASEAN+3 has its own robust and sound infrastructures. Operational risks associated with the systems are comparable with those of developed markets. Each market in ASEAN+3 has its own robust and sound infrastructures.
2. Listed at exchanges and traded in over-the-counter (OTC) markets. Bonds are listed at stock exchanges in many markets; however, these are mostly traded over the phone or through other communication tools by negotiation among brokers and dealers. Bond markets in the region are generally OTC markets. This is common elsewhere since bond trade is mainly quote-driven where brokers and dealers need to negotiate the price. In contrast, exchange trade is order-driven where all orders of buyers and sellers can be seen and matched by systems.
3. Connection between trade system and central securities depository (CSD). In some markets in ASEAN+3, trade data are directly transmitted to CSD from the trade system to be used for bond settlement, which is efficient and effective from an STP perspective. In order to enhance STP in the region, each market is expected to automate and connect systems between trade system and book-entry system of the CSD.
4. Cross-border STP. There are still comparatively few cross-border bond transactions. Almost all trade data are entered in the CSD within the borders of markets. Both trade and book-entry systems are expected to be connected multilaterally to enhance cross-border bond transactions.
5. Cross-border DVP. In order to enhance cross-border STP in ASEAN+3, increasing liquidity of government bonds and currencies in the region is essential. From this perspective, ABMF SF2 members and experts are expected to further discuss fit-and-gap analysis of cross-border DVP transactions.
6. Matching. All markets have a matching at a trade or settlement level, and even at both levels. Some markets adopted central matching and others local matching. In some markets, both central matching and local matching are used. Also, matching with additional features such as reduction of input workloads is implemented. Functions such as input of post-dated transaction for bond settlement book-entry systems and automated pre-settlement matching systems are expected to be implemented since manual pre-matching through facsimile and/or telephone in the region remains to be the mode of matching.
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ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
7. Settlement cycle. Settlement cycles for local bond transactions in many markets are already realized at trade date + 1 (T+1), but market practices of cross-border bond transactions depend on each market player which seem to be more than T+2 and negotiable. As such, there is no standard settlement cycle in ASEAN+3. A settlement cycle, which is a rule for all market participants to observe, is expected, though not stipulated in regulation or law.
8. Harmonization of terminologies and definitions. Terminologies need to be standardized before harmonizing systems and messaging in the region.
9. Institutional Framework. Fostering a mutual relationship among market actors and stakeholders is important to implement a cross-border bond trade and settlement facility. To this end, there is a need to establish an institutional framework involving authorities and experts in the fields of policy, payment, information technology, and business operations to facilitate efficient communication, especially in emergencies such as [system] failures and disasters.
10. Reporting facility. Most markets in ASEAN+3 are developing and improving the reporting facility of trade data to authorities including self-regulatory organizations (SROs). A data collection scheme will be very important for the entire ASEAN+3 to make markets more sound and transparent. Also, this kind of initiative may be coordinated with the activities of the ASEAN+3 Macro-economic Research Office (AMRO).
11. Monitoring new issues. New issues such as new technologies and new standards including Legal Entity Identifier will be monitored to understand market trends and possible breakthrough practices.
Based on these conclusions, possible activities of the next phase of ABMF SF2, as agreed, are listed below.
1. Continuing survey of bond transaction flows, messaging, and market practices;2. Conduct ISO 20022 fit-and-gap analysis for government bond DVP transaction;3. Propose a possible roadmap to standardize and harmonize bond markets in
ASEAN+3;4. Prepare detailed government bond transaction flows of economies that can
possibly be connected bilaterally; and5. Provide technical assistance to economies planning to develop bond markets in
ASEAN+3.
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ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
Member List of SF2
A. National Members and Experts
Economy Membership InstitutionBrunei Darussalam National Member Monetary Authority of Brunei Darussalam
Cambodia National Member Securities and Exchange Commission of Cambodia
China, People’s Rep. of National Member People’s Bank of China
China, People’s Rep. of National Member China Security Regulatory Commission
China, People’s Rep. of National Expert China Securities Depository and Clearing Corporation Limited
China, People’s Rep. of National Expert China Central Depository and Clearing Co., Ltd. (CCDC)
China, People’s Rep. of National Expert Shanghai Clearing House (SHCH)
China, People’s Rep. of National Expert China Foreign Exchange Trade System (CFETS)/National Interbank Funding Center (NIFC)
Hong Kong, China National Member Hong Kong Monetary Authority
Indonesia National Member Ministry of Finance
Indonesia National Member Indonesian Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK)
Indonesia National Member PT Kustodian Sentral Efek Indonesia (KSEI)/ Indonesian Central Securities Depository
Indonesia National Member Indonesia Stock Exchange (IDX)
Japan National Member Japan Securities Depository Center, Inc. (JASDEC)
Japan National Expert Mizuho Corporate Bank, Ltd.
Korea, Rep. of National Member Korea Securities Depository (KSD)
Korea, Rep. of National Expert Korea Capital Market Institute (KCMI)
Lao PDR National Member Ministry of Finance
Lao PDR National Member Securities and Exchange Commission Office, Bank of Lao PDR
Myanmar National Member Central Bank of Myanmar
Philippines National Member Philippine Dealing System Holdings Corp (PDS Group)
Philippines National Member Bankers Association of the Philippines (BAP)
Thailand National Member The Stock Exchange of Thailand (SET)
Viet Nam National Member Vietnam Securities Depository (VSD)
Viet Nam National Member Hanoi Stock Exchange
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ASEAN+3 Bond Market Guide | Volume 2 | Overview of SF2
B. International Experts
Institution Name PositionCitibank Rudy Ingkiriwang Director, Regional Network Management, Global Transaction Services
Deutsche Bank AG Celia D. Orbeta Direct Securities Services, Global Transaction Banking
HSBC Securities Services Patrick Edmond Cichy Senior Business Consultant
J.P. Morgan Masayuki Tagai Executive Director, Global Market Infrastructures
State Street Bank and Trust Jonathan Rodda (1) Director, Securities Market Practice Group (2) Vice President, State Street Bank and Trust Company
State Street Global Advisors Hon Cheung Regional Director - Asia, Official Institutions Group
SWIFT Adam Wilson Director, Securities Markets, Asia Pacific
Alexandre Kech Securities Standards Development
The Bank of Tokyo Mitsubishi UFJ Ltd Taketoshi Mori (1) Director, Securities Market Practice Group(2) Head of Securities Market Infrastructure
C. Observing Authorities
Economy Institution Economy InstitutionCambodia Ministry of Economy and Finance Malaysia Securities Commission Malaysia
Cambodia National Bank of Cambodia Philippines Department of Finance
China, People’s Rep. of Ministry of Finance Philippines Bangko Sentral ng Pilipinas
Indonesia Bank Indonesia Singapore Ministry of Finance
Japan Ministry of Finance Singapore Monetary Authority of Singapore
Japan Bank of Japan Thailand Ministry of Finance
Korea, Rep. of Ministry of Strategy and Finance Thailand Bank of Thailand
Korea, Rep. of Bank of Korea Viet Nam Ministry of Finance of Viet Nam
Malaysia Bank Negara Malaysia Viet Nam State Bank of Viet Nam
D. ADB Secretariat and Consultants
Institution Name PositionADB Secretariat Satoru Yamadera Economist, Office of Regional Economic Integration (–Sept. 2011)
(currently Bank of Japan)
Seung Jae Lee Principal Financial Sector Specialist (June 2011–)
Shinji Kawai Senior Financial Sector Specialist (Banking) (Sept. 2011–)
ADB Consultant for SF1 Shigehito Inukai Professor, Faculty of Law, Waseda University
ADB Consultant for SF2 Taiji Inui Senior Manager, NTT DATA Corporation
ADB Consultant Matthias Schmidt Custody Business Specialist